Promoted Content

The Self-Employed Investor’s Guide to Getting Finance

By David Wegener, Chief Executive Officer, Blue Ink Finance

Promoted by Blue Ink Finance.

My apologies, self-employed people, but you’re risky, unreliable, seasonably variable and sometimes a little fuzzy with your paperwork.

Or at least, that’s what a lender will say when you walk in the door asking for a loan.

No doubt, it can take a little extra nous to land finance when you’re your own boss. But I think if you’re smart enough to run your own business, you’re certainly smart enough to figure out how to get what you need from a lender.

Let’s simplify everything into a quick guide to how banks will treat you as a self-employed borrower, and then the steps you can take to land the loan you want.

First of all, banks need to see details on paper.

Yes, this one’s obvious, but for some, administration is not second nature. Make sure you keep all your incoming and outgoing monies in order. You’ll may need to provide BAS documents, tax returns and bank statements. 

Use a finance program or App to keep everything on track and on hand. You don’t want to miss a piece of vital documentation that could make or break your chances for approval (and your accountant will thank you at tax time).

Know that banks will mitigate their risk by downplaying your income.

Banks are smart. They know self-employed people are more risky, so they’ll look at two years’ worth of your income and choose the lowest-earning year as the numbers they’ll base their lending on, or use an average of the two. Unfair? Absolutely. But their priority is securing their loan, so they’re going to make sure you can afford the repayments.

You might need to wait if your business needs another year to gain more profit, or you could look at sourcing a cheaper property that fits within your borrowing power as it stands. You might need to save up a bigger deposit to offset a smaller loan amount.

Tip: There are some banks that only look at the previous years’ income, so if your business is less than two years old or you earned substantially more in the latest financial year, source a bank who will work on one year of documentation.

If you need personalised advise on the best strategy for your specific situation moving forward, I strongly encourage you to request a Complimentary Finance Review with Blue Ink Finance.

Be aware that banks will offer you ‘alternative’ loans that will likely cost you more.

You may have heard of ‘low doc’ loans, which require less documentation compared to full-doc loans. Therefore, this may be an option for a self-employed person who can’t gain approval for a regular loan.

However, there’s a catch. Often these low doc loans charge a higher interest rate and higher one-off fees, so banks can protect themselves from risk.

Here’s one such example of interest rate comparison

 

 Standard Variable

 Standard Low Doc Variable

 3 year fixed

 Low doc 3 year fixed

 Min

 3.44%

 4.03%

 3.69%

 5.69%

 Max

 5.82%

 6.86%

 5.05%

 7.69%

 Average

 4.63%

 5.23%

 4.42%

 6.25%

Source www.canstar.com.au interest rates as at 08/07/2018

While a low doc loan might be a good choice for you in your circumstances, always do the numbers before diving in.

Other ways to boost your borrowing power as a self-employed person:

Be mindful that your deductions can be your undoing. Reducing your taxable income through deductions means that in the banks’ eyes, you earned a lot less than you did.

If you’re planning on applying for credit in the near future, ask yourself this at tax time: if I claim all my deductions, am I going to miss out on a loan for my next property? Is the tax return amount worth it?

Reduce the limit on your credit card. Regardless of how much is owing on your credit card, banks will see your limit as the amount you owe. Dropping your $20,000 limit to $6,000 can do wonders for your serviceability.

Have savings in the bank and a history of good budgeting. If you can prove your saving ability and provide a buffer, banks will look on you more favourably.

Being self-employed might present its challenges when it comes to working with lenders, but with a thoughtful strategy and some processes in place, banks will struggle to find a reason to say no.

If you would like to discuss more, at Blue Ink Finance, we don’t just get you a loan, we look beyond the loan application to consider and factor in your goals, your budget and your lifestyle. As your finance coach, we want to be part of your journey and not just a single loan. Click here to request your Complimentary Finance Review with one of our experienced Finance Coaches now.

 

About The Author

David Wegener
Chief Executive Officer
Blue Ink Finance

Who I am, and why I want to help you succeed.

As an award-winning Mortgage Broker with nearly 20 years’ experience in the finance industry, I’ve seen it all.

I’ve gone through constant industry changes and yet I still successfully help my customers borrow the money they need to get ahead.

As a Finance Coach, my goal is to help you understand your financial potential so that you can borrow with confidence.

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podcast

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

" ["fulltext"]=> string(818) "

To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1185 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

" ["fulltext"]=> string(2323) "

Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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